Activity to Develop and Demonstrate Competence in

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1 Paper Cost Accounting Aim This paper aims at testing students ability to develop an understanding of the principles of cost accounting and examining their knowledge of costing methods and techniques that can be applied to a variety of business situations. Content. Framework of cost accounting Ability to compare cost, management and financial accounting Explain and differentiate the purposes of cost accounting, management accounting and financial accounting Appreciate the role of cost accounting in a management information system Appreciate the importance of financial and nonfinancial information for planning, control and decision-making purposes Knowledge of cost classification, concepts and terminology Recognise the variety of cost units, cost centres and profit centres Understand the nature and purpose of cost classification Appreciate the importance of cost coding system and cost accumulation Differentiate between direct and indirect costs; fixed and variable costs; period and product costs; controllable and uncontrollable costs; avoidable and unavoidable costs; etc. Identify cost classification for decision-making and planning Appreciate cost behaviour patterns including linear, curvi-linear and step functions Appreciate the importance of unit costs to both financial and management accountants - -

2 . Framework of cost accounting (continued) integrated and interlocking costing system Explain and illustrate the link between cost accounting and financial accounting Explain and illustrate the working of interlocking accounts and integrated accounts Prepare the accounting entries in a general ledger under an integrated costing system Understand the reconciliation of cost accounts with financial accounts. Principles and practice of cost accounting materials cost as an element of finished goods Describe the methods and procedure of storekeeping, stock-taking and stock control Explain and illustrate the perpetual inventory system and its procedures documentation Explain and illustrate the methods available for pricing stores issues and for stock valuation labour cost as an element of finished goods Appreciate the basic features and functions of direct and indirect labour costs Use and contrast different remuneration methods Appreciate the process of labour cost accounting Calculate and appreciate the implications of labour turnover - -

3 . Principles and practice of cost accounting (continued) overhead costs as an element of finished goods Appreciate the nature of overhead costs Explain and illustrate the problems and procedures of collection, analysis, allocation, apportionment and absorption of overhead costs Ascertain the different bases for overhead absorption rates Appreciate the use of and compute the predetermined overhead absorption rate Differentiate and calculate plant-wide overhead rates and departmental overhead rates Explain and illustrate the principles and methods of treatment of under-and over-absorption of overhead costs. Application of cost accounting nature and features of job and batch costing Describe the purpose and the content of a job cost sheet Account for the flow of costs when using job order costing Explain and illustrate the cost accounting methods used in costing the products and services of a business Outline the characteristics, procedures and documentation of job-order costing and batch costing - -

4 . Application of cost accounting (continued) principal features of contract costing Explain and illustrate the applications and identification of cost units Appreciate the skill needed in the preparation of a contract account Appreciate the treatment of profit and uncompleted contracts Explain and illustrate the ledger entries relevant to contract costing Knowledge of the nature and features of process costing Explain and illustrate the applications and identification of cost units Illustrate the ledger entries and special features of process cost accounts Explain and compute the equivalent units and cost per equivalent unit Demonstrate how costs are assigned to equivalent units using process costing Explain and illustrate the cost accounting methods used in cost processes, process losses and workin-process Differentiate joint product and by-product costing - 4 -

5 . Application of cost accounting (continued) principal features of activity based costing (ABC) Define activity cost pools and provide examples Compare and illustrate ABC and traditional product costing systems Demonstrate how activity bases are used to assign cost pools to units produced Outline the benefits and limitations of ABC Explain the differences between, and the effect of, using full absorption costing, marginal costing and activity based costing for the allocation of costs to products 4. Information for planning and control need for, and benefits of, budgeting and budgetary control Identify the objectives of budgetary planning and control systems Prepare functional, cash and master budgets Appreciate the differences between fixed and flexible budgets Calculate variances and identify their causes Explain and illustrate the concept of zero-based budgeting - 5 -

6 4. Information for planning and control (continued) standard costing Appreciate the uses and limitations of standard costing Explain the importance of using standard costing to control costs Identify and determine different standards: basic, ideal, attainable and current standards Identify and calculate sales and cost variances Prepare standard product cost and analyse different types of variances between standard and actual product costs Identify the significance of and inter-relationship between variances Skill in analysing costvolume-profit (CVP) relationships Prepare a CVP graph Calculate and explain the usefulness of contribution margin and contribution margin ratio Determine the sales volume required to earn a desired level of operating income Identify the purposes of break-even analysis Illustrate and determine the margin of safety Use CVP relationships to evaluate a new marketing strategy Identify assumptions underlying CVP analysis - 6 -

7 Examination format: Section A 0 5 multiple choice questions 0 marks Section B 4 out of 5 questions 80 marks marks ======== Essential reading: Author Title Publisher Fong, S. C. C. and Kumar, N. K. Drury, C. Cost Accounting (00 Edition) Cost & Management Accounting: An Introduction (6 th Edition) HKIAAT (formerly HKAAT) Thomson Learning Lucey, T. Costing (6 th Edition) Continuum Additional reading: Author Title Publisher Garrison, R. H. and Noreen, E. W. Drury, C. Horngren, C. T. and Foster, G. Managerial Accounting ( th Edition) Management & Cost Accounting (6 th Edition) Cost Accounting, A Managerial Emphasis ( th Edition) IRWIN/McGraw-Hill Thomson Learning Prentice Hall - 7 -